Conflict of interest or business as usual? Resident questions HOA president's multiple jobs

Live in a home governed by a condominium, co-op or homeowner's association? Have questions about what they can and cannot do? Ryan Poliakoff, an attorney and author based in Boca Raton, has answers. 

Question: Our homeowner's association is situated within a property owner's association. The POA governs several HOAs within a planned unit development.

The president of our HOA is also the president of the POA.  The president of these two associations was the seated president of the HOA board while presenting and voting for the engagement of the HOA's management company. This president recently obtained their Community Association Manager (CAM) license and has subsequently become a "consultant" to the POA management company and also obtained a new position within the HOA's management company while continuing as president of both associations. Are our president's actions suspect, or is this a norm which should not be given any additional attention? Signed, J.B.

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Dear J.B.,

First I want to clarify for our readers, a “POA” or “property owner's association”  is not a term that is legally relevant in Florida, but it’s frequently used as shorthand to refer to master associations that govern multiple sub-associations within a larger community.

By contrast, HOA, short for homeowner's association, is a defined legal term under Florida law — it is a “Florida corporation responsible for the operation of a community or a mobile home subdivision in which the voting membership is made up of parcel owners or their agents, or a combination thereof, and in which membership is a mandatory condition of parcel ownership, and which is authorized to impose assessments that, if unpaid, may become a lien on the parcel.”

You can see that this definition would likely cover the “POA” master association as well as the HOA — and in fact, the vast majority of master associations are HOAs, governed by the HOA Act (Chapter 720). Whether you call the master association the “master,” or a “POA,” or perhaps refer to it as a “PUD” (a planned unit development, another term that comes up from time to time and is more frequently used in the northeast), it’s all the same thing — you have two associations governed by Chapter 720, one of which governs property shared by multiple sub or neighborhood associations, and the other that governs one of those neighborhood associations.

In the case you’ve described, your neighborhood association president is also the master president.  That’s not uncommon.  It does create a possible conflict of interest when the HOAs interests directly conflict with the POAs interests. It’s up to the president to determine how to thread the needle to uphold their fiduciary duties to both associations — but it’s a real quandary. Those issues don’t always come up, but when they do, splitting loyalties can become complicated.

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The bigger issue that you’ve described, however, is that the president is employed by the management companies for both the POA and the HOA.

This is not expressly illegal (and it’s pretty common), but of course it presents a different kind of conflict of interest any time that issues related to those management companies arise.

For example, let’s say that the board wants to discuss the management company’s performance, and is considering firing that management company — is the president able to wear only his POA or HOA hat and evaluate the company independently? Or is the president going to feel obligated to protect the management company, regardless of its performance, to protect his own job — or even reveal confidential discussions to the company? The president is not inherently unable to separate out these interests, but it does raise a lot of awkward questions.

The HOA Act provides that directors and officers must disclose any activity that might be construed as a conflict of interest (I think this qualifies) at least 14 days before voting on an issue related to that conflict.

There would be a presumption of a conflict if this president owned a piece of the management company or was personally contracting with the management company, but it doesn’t sound as if that’s the case. So, assuming that the president has disclosed the conflict, they would not be legally prohibited from voting on management issues or being part of those discussions. Pursuant to the Not For Profit Corporation Act (Chapter 617), any transaction that would constitute a conflict of interest (for example, a decision regarding the management company contract if this president were in fact a part owner) would need to be disclosed to the board and approved by a majority of the disinterested directors.

With that said, and if it were me in this situation, I would remove myself from any discussion that even tangentially concerns the management company or its performance.

In truth, the fact that your president works with the management companies can be a good thing — it may allow them to get quicker responses to association problems and to make your communities a priority. There are clearly pros and cons, but what they’re doing is not illegal — just problematic.

Ryan Poliakoff, a partner at Poliakoff Backer, LLP, is a Board Certified specialist in condominium and planned development law. This column is dedicated to the memory of Gary Poliakoff. Ryan Poliakoff and Gary Poliakoff are co-authors of "New Neighborhoods — The Consumer’s Guide to Condominium, Co-Op and HOA Living." Email your questions to condocolumn@gmail.com. Please be sure to include your location.

This article originally appeared on Palm Beach Post: Conflict of interest or business as usual? Resident questions HOA president's multiple jobs